1. 2006 Budget Recommendation September 20, 2005

2. Agenda Budget Preparation Policy Issues Recommended Budget Assumptions Sensitivity Finance and Audit Committee Recommendation

3. 2006 Budget Preparation and Review Process started March 3, 2005 Rigorous review process –Internal Line managers ERCOT officers Budget group comparisons –External Public review and feedback (August 3, 2005) Five Finance and Audit Committee Reviews Preview with Board of Directors during August Meeting –Feedback incorporated into proposed budget

4. Policy Issues

5. Recommended Base Budget and Fee

6. Recommended Budget and Fee Note: The cost of line item “Market Monitoring” is estimated at $3 million in 2006 and escalated at 3% per year. The actual cost of the market monitoring component of the ERCOT budget is to be justified and established by the PUCT.

7. 2006 Budget Assumptions Operating expenses –Based on historical spending Operating expenses –Continued emphasis on monitoring and controlling operating costs Debt service –Existing debt amortized per agreement –New debt amortized straight-line over three years –Interest rates consistent with debt agreements or based on long- term average LIBOR $25 million in project expenditures –$10 million revenue-funded –$15 million debt financed –No budget funds for wholesale market redesign Energy consumption growth at 2.2 percent over projected 2005 level

8. Sensitivity and Risks All contingencies eliminated Working capital used to manage unanticipated variances Category$.01/MWh Equivalent Operating cost+- $3 million Electricity consumption+- 7 GWh Revenue funded capital+- $7.5 million Debt ServiceMinimal

9. Finance And Audit Committee Recommendation Approve 2006 Recommended Budget –Total Spending Authorization $144.4 million –Revenue Requirement $129.4 million –ERCOT System Administration Fee $0.4200/MWh $0.4054/MWh for base budget items $0.0097/MWh for market monitoring (*) $0.0049/MWh for incremental debt reduction (*) The cost of line item “Market Monitoring” is estimated at $3 million in 2006 and escalated at 3% per year. The actual cost of the market monitoring component of the ERCOT budget is to be justified and established by the PUCT.